A Mid-Year Analysis of Supply Chain Challenges
Supply chain practitioners have struggled with significant upheaval in 2019 in the face of strained international relations with formerly stable trade partners and increasing disruptions of traditional practices by major players. As 2019 moves into summer, many logistics stakeholders are left wondering how supply chain instability will impact the success of the upcoming holiday peak season, their long-term forecasts, and day-to-day operations.
This blog post will analyze the current state of the logistics industry with the aim of helping our customers and readers determine how to best approach upcoming challenges and trends.
Supply Chain Challenges for Mid-Year 2019
The following issues are at the forefront of the supply chain and will likely define the remainder of 2019.
Amazon turned the supply chain on its head with promises of two-day shipping for Amazon Prime members beginning back in 2005. American consumers became used to this level of convenience and began demanding similar service from all retailers and e-commerce companies in what has become known as “The Amazon Effect.”
Here in 2019, two-day shipping is the standard—but Amazon went and did it again by building a logistics network capable of reaching most of the U.S. population within a day. Amazon announced a rapid expansion of its same- and one-day shipping services, sending the retail sector into a renewed panic. Other industry giants—such as Walmart—have challenged Amazon’s power move with similar quick-shipping plans of their own. However, e-commerce businesses that don’t have the resources of Amazon or Walmart are rightfully worried about how this will impact their businesses.
Many e-commerce companies have responded to this new normal by seeking out real estate near secondary markets, or by partnering with logistics providers who can offer these resources. By diversifying distribution and fulfillment assets, e-tailers hope to reduce shipping times and remain competitive with the industry giants.
As e-commerce dominates retail sales and omni-channel makes a surprising comeback, these businesses must contend with a rising increase in returns. Not only do consumers return billions of dollars in merchandise they purchased online each year—they want the process to be easy and free (we can thank Amazon again for setting this standard).
Shippers are turning to third-party logistics providers (3PLs) for help in this area, with 24% of respondents to the 2019 Annual Third-Party Logistics Study saying they outsource this process, and 44% of 3PLs saying they offer reverse logistics support.
As shipping speeds get faster and online ordering becomes more convenient, this problem will only get worse. Continuous growth in reverse logistics is a surety for the rest of 2019 and beyond.
Tariffs are a topic of daily discussion for most supply chain managers and business leaders. The U.S.-China trade war has received the lion’s share of attention as a seemingly endless list of back-and-forth retaliatory tariffs continues to grow. The escalating trade dispute between the two countries doesn’t show any signs of stopping, as negotiations have fallen apart more than once already.
The White House is also using tariffs as a negotiating tactic with Mexico. In the midst of an expected ratification of the U.S.-Mexico-Canada (USCMA) trade deal by all parties, President Trump announced that he would impose tariffs on Mexican imports by June 10, 2019, if our southern neighbor doesn’t curtail the flow of migrants and asylum seekers from South and Central America that pass through Mexico on their way to the southern U.S. border.
Add up these disputes and U.S. businesses are looking at increased costs on nearly 1/3 of all imports. What seemingly began as a simple negotiating tactic that could be mitigated with short-term adjustments has now gone on for more than a year. Many American manufacturers and retailers can no longer afford to eat the increased costs of importing goods, components, and raw materials, and have begun to pass those costs on to their customers.
Meanwhile, trans-Pacific shipping has also begun to suffer under the new tariffs. While the trans-Pacific shipping industry originally saw a boon as American and Chinese companies sought to purchase inventory in advance of tariffs, business is dropping off and carriers are left facing an overabundance of capacity and slow projected market growth. Domestic carriers are suffering as well because U.S. importers are holding high levels of inventory, which is impacting freight demand in domestic ground transportation.
Many industries are struggling to adapt to this new trade environment, including telecommunications giants, farmers, automakers, and manufacturers, among others. It seems unlikely that the tariff wars will end in 2019, so it’s critical that all affected logistics stakeholders begin diversifying their supplier and partner relationships to combat risk and disruption.
Logistics Support from Phoenix Logistics
Phoenix Logistics offers a comprehensive range of logistics and business management services to help our customers mitigate the risks of the modern supply chain. With our wide global and domestic networks of supply chain industry partners, we can help you to manage rates and keep logistics costs affordable.